I recently had the privilege of assisting one of the world’s greatest economists in his detective work that comprehensively completes the great work of demolishing the conceptual foundation of the free trade cancer that, far from enriching them, has destroyed the economies of the West. The subsequent paper, The Deliberate Deception in Ricardo’s Defence of Comparative Advantage, was published today by the lead author, Steve Keen. And while it’s a pure coincidence that he happened to notice Ricardo’s textual amphiboly at about the same time that I noticed Kimura’s algebraic amphiboly, I don’t think it’s entirely accidental that two intellectual fixtures of modernity should prove to be constructed on such fundamentally flawed foundations......
The difference in this respect, between a single country and many, is easily accounted for, by considering the difficulty with which capital moves from one country to another, to seek a more profitable employment, and the activity with which it invariably passes from one province to another in the same country. (Ricardo, Sraffa, and Dobb 1951, p. 136. Emphasis added)
“Province”? Why does Ricardo give the example of moving capital between provinces here? His model involves something categorically different: to exploit comparative advantage, capital must move between industries—from cloth production to wine production.
This is not a minor distinction. Geographic mobility of financial capital means that financial resources can flow to wherever returns are highest—a bank in London can lend to a manufacturer in Yorkshire. Geographic mobility of physical capital means moving equipment by road or canal, rather than by sea and ship. But sectoral mobility of physical capital means that the physical means of production in one industry can become the physical means of production in another—that looms can become wine presses, and vice versa. These are entirely different forms of mobility—one feasible, the other impossible.
Ricardo elsewhere in the Principles demonstrates his awareness of the distinction between physical and financial capital, and the fallacy inherent in treating physical capital as if it has the fungible characteristics of financial capital. In Chapter IV, “On Natural and Market Price,” he explains how the profit rate equalizes across industries: “the clothier does not remove with his capital to the silk trade” (Ricardo, Sraffa, and Dobb 1951, p. 89). Adjustment happens through the financial system, not through physical transformation of productive equipment. Only money moves between industries, and only relative prices change; the looms and the wine presses stay where and as they are.
Read the whole thing on Steve Keen’s site.